One of the big drivers of Trump-style politics around the world is the desire of everyday voters to ‘bring back manufacturing jobs’.
Australia is no different in this respect. A survey published by Fairfax Media this week revealed that 83 per cent of Australians agree that Australia is too reliant on foreign imports – a view that hardly varies with “age, gender, income or locality”.
That makes ‘Made in Australia’ political gold, and we have already seen Labor, the Greens, Pauline Hanson’s One Nation, Queensland independent Bob Katter, Tasmanian senator Jacqui Lambie and the Nick Xenophon Team give at least some support to protectionist thinking.
It’s not clear yet whether Liberal defector Cory Bernardi will join them, but while he’s thinking about it somebody had better start explaining to voters what that phrase ‘Made in Australia’ really means in 2017.
A changing sector
In 1990, British actor Anthony Hopkins spent time in Australia making Spotswood – the story of a footwear company in Melbourne that corporate man ‘Mr Wallace’ had been sent to shut down.
The film was a little ahead of its time – CSIRO research published last year noted that manufacturing hit a “high in 1995, when it contributed 14 per cent of GDP and employed more than a million people”.
Since then it has ground lower, now accounting for just 6 per cent of GDP. But that’s not to say it should continue that slide. Manufacturing is changing rather than becoming extinct.
The CSIRO research identified several trends.
Manufacturing has become far less labour intensive and much more capital intensive, and it relies on companies finding their place within sophisticated networks of specialist firms – sharing information, tapping into high-tech supply chains and not caring particularly where the customer or final product assembly happens.
Where the Spotswood factory once churned out standard moccasins, a modern manufacturer might be taking a digital scan of a customer’s foot from Tokyo and building the shoe using a bespoke set of colours and materials – charging a premium for the privilege.
Manufacturing through global supply chains is not a new story – it was part and parcel of the neo-liberal push for open markets that got under way in the mid-1980s.
But just as most developed nations had learned to see everything through the lens of ‘globalisation’ and ‘efficiency’, the global financial crisis and worsening inequality have given voters a second lens – economic nationalism.
This shifts attention away from the question ‘are we globally competitive?’ and focuses instead on ‘is our nation winning?’ They are not always the same thing.
The biggest Australian manufacturing story of the past few years has been the demise of the car-making industry, which until 2013 was used to relying on government subsidies or, as some prefer to call them, government ‘co-investment’.
That industry was finally sent to the wall in late 2013 when the staunchly neo-liberal Abbott government told the last manufacturers that the subsidy game was over.
Such a move might have made sense when viewed through the globalisation lens, but not through the ‘are we winning?’ lens. For the country it was a huge loss.
By sourcing parts from hundreds of smaller firms, the car makers supported local high-tech, capital-intensive suppliers – with thousands of transactions in Australian dollars, and profits taxable by the ATO.
Moreover, those parts were assembled into the finished product – the highest value-added part of the operation – right here.
That’s important, because when the national accounts are compiled, the export of around $1.5 billion worth of cars last year helped to reduce the size of our trade deficit.
And why does that matter? Because Australians are very good at consuming manufactured goods from abroad, and paying for them with commodity exports and services exports.
Expect more black swans
The trouble with that kind of economy is that when a ‘black swan’ comes along – the GFC being the biggest of the past decade, but Donald Trump possibly being the next biggest – our economy is highly exposed to the whims of Wall Street or the White House.
During 2009, for instance, the Aussie dollar tumbled to 65 US cents and we stared down the barrel of massive imported inflation – including oil which was peaking near $US200 a barrel (it’s $US53 today).
The welfare of Australian households hung in the balance, but we were saved at the last minute by China’s huge stimulus spending on Australian iron ore and coal.
But what if we hadn’t been?
To continue with the car case study, our vehicles would have been cheaper for overseas customers, so exports would have been boosted. And Aussies could have bought Australian cars over imports.
When this kind of bigger picture is taken into account, the instinctive desire of voters to see more of the goods they consume made on home soil is not unreasonable.
That’s not an argument to boost import tariffs and shut out cheap foreign goods.
However, when the ‘free’ market is directed from Beijing, Wall Street or Trump Tower, there’s a strong argument for some government intervention to stop all the nation’s eggs ending up in one basket.
To read more columns by Rob Burgess click here.